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The Indian rupee could fall to 65 against the US dollar over the next one month and perhaps even to 66 within three months as offshore bets on the Indian rupee continue to remain bearish.

In Singapore on Wednesday, the three-month non-deliverable forwards dollar/rupee rate was quoting at 64.40/$ but then rose to 66/$ as London markets opened. One-month non-deliverable forwards were quoting at 65.25/$ in london at 6.30pm IST. The rupee closed at a record low of 64.03/$ in the spot markets after hitting an intra-day low of 64.63/$

NDF rates rose in anticipation of the minutes of the US Federal Reserve’s last policy setting meet which could give cues on the likely tapering of the Fed’s quantitative easing programme.

The onshore forward rates predict a milder fall in the rupee. The three-month dollar/rupee onshore forward was quoting around 64.95/$

In the exchange traded dollar/rupee futures, however, the three-month contract traded at 65.20/$.

Bankers say that the NDF market is more sentiment driven and thus can forecast the impact of global headwinds on the currency more accurately.

“Onshore market has both sentiment and flows as drivers. The offshore NDF has market participants who are largely sentiment-based and position based,” said Hitendra Dave, head of global markets at HSBC.

The gap between the offshore and the onshore rates have widened again to as much as 30 paise on Wednesday and on an average the gap has been around 35 paise so far in August. This suggests that a considerable arbitrage between the two markets persists which could push up rates in the onshore forwards market as players take advantage of the opportunity.

Dealers said that the influence of the offshore NDF market on the onshore rates has not diminished despite the RBI’s clampdown on speculation. The central bank had announced liquidity-tightening measures a month ago to make the rupee more expensive and had also banned banks from trading in dollar/rupee futures on their books.

“The NDF influences the onshore rates even now. Morning trades are taken after looking at offshore rates and usually the rupee opens with a negative gap if the dollar/rupee NDF has risen in New York,” said a currency dealer at a foreign bank.

Interestingly, the offshore and onshore rates had converged on days that immediately followed the RBI’s announcements. For instance, the three-month NDF rate and the onshore forward rate gap was a mere 2 paise on